BigOlDave

Cramer's Stop Trading! The Fall of Wal-Mart?(11/3/09)

For many years I worked for a paper company that ran tons of boxes for companies like P&G. P&G sourced through several of our competitors, whip-sawing us to the point where the business had no profit margins. Later many of these paper companies got out of the business entirely, or would not bid on business for cut-throat outfits like P&G.

Wal-Mart is similarly "cut-throat", dealing only with suppliers who sell to them at a price where Wal-Mart (1) makes an acceptable (usually low) profit margin; AND (2) can offer the supplier's product at a price at or below competitors' stores'. Wal-Mart buyers are savvy negotiators who will always leverage volume (good for suppliers -- covers fixed costs and allows economies of scale) and price (good for Wal-Mart customers and, ultimately, shareholders). Suppliers are forced to tighten up their operations to stay in business.

Suppliers that opt to fight with Wal-Mart will get to see Wal-Mart's back: Wal-Mart will walk away. If Stanley Black & Decker thinks they can now squeeze higher prices out of Wal-Mart (or Lowes or Home Depot, for that matter), they will end up with a lot of power tools in their finished goods inventory. If I ever replace my Craftsman drill, I could care less who makes it, as long as it's good value (value = quality + price).

Many Americans still don't accept that all markets are now global. If we can't compete, we die.

In the meantime, Wal-Mart looks like the best, one-stop place in town for good stuff at a bargain price. It lets me maintain a standard of living my income would otherwise no longer permit.